How The Difference Adversely Impacted A Property Owner In A Condemnation ProceedingToday’s blog post concerns a property owner receiving substantially less than it wanted when its property was taken in an eminent domain proceeding because the “highest and best use” it claimed was applicable to the site required an area variance and a zoning change, rather than a special use permit. The awarded amount was about $1 million less than the property owner was seeking. The case, Matter of the Application of the Town of Oyster Bay v. BPJ Marine Corp., Supreme Court Nassau County, Index # 18701/2010, Justice Thomas A. Adams, December 3, 2013, affirmed, 139 AD3d 741 (2d Dept 2016) pitted BPJ Marine Corp., doing business as Gus Marine in Massapequa (the “Marina”) against the Town of Oyster Bay (the “Town”). It demonstrates the pitfalls facing an owner trying to establish the “highest and best use” of a parcel to maximize the condemnation award when the zoning prohibits the use.

The Marina

The Marina is located on a canal in Massapequa. It is composed of 2 parcels, divided by Alhambra Road. The eastern parcel is about 18,000 square feet in size. About 44% of that eastern parcel (7,900 square feet) is underwater. The eastern parcel has 180 feet of waterfront, all of which is bulk-headed except for a 10-foot boat ramp. The eastern parcel is about 75 feet wide, from the street line to the bulkhead. The western parcel is about 10,100 square feet and does not directly abut the water. Both parcels together are approximately 0.6 acres. The site is zoned as General Business (“GB”).

Prior to 2005, the Town permitted townhouse developments in GB zones as a special use. The site to the north of the Marina was developed as a townhouse complex 7 years before 2005, after obtaining a special use permit. In 2005, the Town enacted a local law prohibiting townhouses in GB zones. That 2005 local law was in effect at the time of vesting. Vesting is the point of time at which title to the land is deemed to be in the hands of the condemnor and no longer in the hands of the private owner. See New York State Eminent Domain Procedure Law (“EDPL”) § 402(B).

The Condemnation

The Town decided to condemn the Marina and made advance payments of $939,000 and $175,536.75 to the Marina. Not unexpectedly, the Marina claimed that the payments were woefully inadequate. The matter then proceeded to court.

The Marina claimed that the “highest and best use” of the site was as a townhouse condominium, asserting that 7 townhouses could be built at the site. The Marina asserted that the western parcel could be used for 2 of the 7 townhouses (with a value of $480,000) and the eastern parcel for 5 townhouses (with a value of $1,231,000.) Taking into account other factors, such as the cost to remediate the bulkhead and backfill it, the Marina claimed that the full value of the “highest and best use” award should have been $1,711,000.

The Town disagreed, asserting that the “highest and best use” of the site was as a marina and based its advance payments on that assessment. The Town presented evidence at trial that a townhouse complex had no reasonable probability of ever being approved for the site. The Marina would need to obtain a change of zone as it could not get a special use permit in light of the 2005 local law. Moreover, since the Marina was a conforming use in the GB zone, it could not take advantage of a Town code provision that allowed the Town to swap out a non-conforming use with a less intrusive non-conforming use.

The trial court and the Appellate Division agreed with the Town. The courts held that there was no reasonable probability that the Marina would get the site re-zoned to permit townhouses because of the express prohibition of townhouse construction in the GB zone in the 2005 local law. The courts noted that even if the zoning board of appeals overlooked that prohibition, the size of the area variance was massive and would not be granted. In making a determination to grant or deny an area variance, the zoning board of appeals would have to consider and balance the following factors: (1) will granting the area variance produce an undesirable change in the character of a neighborhood; (2) can the benefit sought by the applicant be achieved in some other feasible method; (3) is the requested relief substantial; (4) would the area variance, if granted, have an adverse effect or impact on the physical or environmental conditions of the neighborhood; and (5) is the condition requiring the area variance self-created.

The courts determined that the substantial size of the relief militated against the Marina. The courts noted that a townhouse complex under the zoning code needs a minimum of a 5-acre lot. The Marina was asking to build on a site that was less than 1 acre and a significant portion of the site was underwater land. The courts determined that the zoning board of appeals has never granted such an area variance of this magnitude. The courts also found that the problem was self-created because any developer that would submit a plan for seven townhouses on this undersized site couldn’t claim that it didn’t know how drastically undersized it was.

The trial court determined that the appropriate award was $35 per square foot, which amounted to about $732,000.

Although not mentioned in the decisions, since the award from the court was less than the advance payments made by the Town, under § 304(H) of the EDPL, the Marina may be subject to having to repay the amount that exceeds the advance payments. Not a happy ending for Gus Marine.